Bankruptcy judge: Convince me

Thursday

Mar 20, 2014 at 12:01 AM

SACRAMENTO - Judge Christopher Klein, who is overseeing Stockton's bankruptcy case, said Wednesday morning he has been paying close attention to recent news reports that have suggested the nearby city of Vallejo could face a second insolvency.

Roger Phillips

SACRAMENTO - Judge Christopher Klein, who is overseeing Stockton's bankruptcy case, said Wednesday morning he has been paying close attention to recent news reports that have suggested the nearby city of Vallejo could face a second insolvency.

Klein made the remark during a one-hour status hearing Wednesday on Stockton's case, which is less than two months from going to trial.

The judge made the comment because Stockton is proposing to exit bankruptcy without touching its employee pension obligations, just as Vallejo did when it exited bankruptcy in 2011. Klein said he wants to be certain that if Stockton exits bankruptcy without addressing pensions, it will not run its own risk of a second insolvency.

"The court has an independent duty to satisfy itself that the (Stockton) plan is going to work," Klein said. "I'm probably going to have to be persuaded that the plan is going to work."

Klein's statement may have been sparked by a report one month ago by Moody's Investors Service. The report suggested Stockton will face a possible second bankruptcy if it does not reduce its pension obligations.

"What you're reading in the press is not true," Levinson told Klein. "Look where the press is coming from. It's coming from the tools of Wall Street."

Stockton's bankruptcy trial remains scheduled to begin May 12. Attorneys for the city and for the lone remaining major creditor - Franklin High Yield Tax-Free Income Fund and Franklin California High Yield Municipal Fund - on Wednesday scheduled two more pretrial status conferences for April, one early and another late in the month.

Franklin lent the city $35 million for various projects in 2009. The city proposes in its bankruptcy plan to repay Franklin less than $95,000.

There was no indication one way or the other Wednesday whether the city and Franklin might be able to reach a negotiated settlement before the trial date. Attorneys for both sides did indicate they are cooperating well enough with each other that they have not needed Klein to intervene.

"We have engaged in furious discovery with Franklin," Levinson said. "By furious I don't mean angry. I mean intense. ... There have been bumps in the road, ... but together we have been able to overcome them."

Contact reporter Roger Phillips at (209) 546-8299 or rphillips@recordnet.com. Follow him at recordnet.com/phillipsblog and on Twitter @rphillipsblog.